The Chinese Economy

China has faced worrying and unpredictable changes from the outset of the pandemic.

The first wave of Covid-19 to hit the country in 2020 brought with it an economic shock for China. Evidence shows that this wave of economic decline is on the rise and it is not clear to what extent it is going to affect the people and the government.

This raises two key questions about the state of the economy in China: How much will the economy suffer? And how much of this suffering will be reflected in the official statistics?

The levels of economic decline reported by China at the outset of the pandemic in 2020 came as a surprise to numerous forecasters. Chinese economists were taken by surprise by the rate of economic decline which dismantled all their statistical calculations and predictions. The figure stood at 13.5% in 2020 and it is not clear when signs of a sustainable recovery will begin to emerge.

China continues to suffer its worse economic downturn in recent years, exacerbated by lockdowns in its Covid strategy. All economic reports point to a worsening situation on a daily basis as its strategists scramble to find practical solutions.

Among other sectors, construction and property sales have also plummeted in the country as the unexpected rate of inflation has increased the price of building materials.

Businesses have had to temporarily shut down under lockdown rules and inflation has impacted all aspects of life. Small and big businesses are faced with a mountain of problems as the gap between income and spending continues to widen. Last year China faced a higher rate of inflation in the final months of the year. Evidence shows that this remarkable rate of economic decline can negatively affect all other sectors and create significant obstacles.

For instance, the number of people going on trips fell considerably due to the lockdown and travel restrictions, hurting the tourism sector and its income for China. Schools had to close down and even online jobs were affected

China’s National Bureau of Statistics said on Monday that economic output from October through to December was only 4% higher YOY, with an average two-year growth of 4.9% in the third quarter of July to September.

Prior to the pandemic, China had a strong economy with many of its goods in high demand worldwide. But now global demand for electric devices, furniture, and other welfare technology from China has dropped significantly.

China has increased its production but there is no demand for its products as much as the previous years and the gap in supply and demand has turned into a big concern for this country. It has prompted its leaders to remove inequalities, control efficiency in companies, and make long-term plans to secure the country’s economy and national security. The government, however, is taking rather conservative steps towards its goals to avoid further problems.

Next month, Beijing will be hosting the winter Olympics. This event can be an international boost for this country. Mr Xi has said that we are optimistic about the future of China and we are really sure that we can overcome the pandemic.

In the meantime, China is also facing an aging population as a major threat to its future. Its one-child strategy has been successful and its population is now getting older. The Statistics Office of China has announced that the birth rate is decreasing and this is another crisis for China.

Millions of businesses have had to stop work and lay off their employees due to the pandemic, rising unemployment rates and imposing financial hardships on a population with a lower purchasing power. Chinese leaders are well aware of the problems and the many challenges faced by private businesses and factories alike.

Zero-Covid  and Economic Decline

China’s has thrown the international supply chain into chaos and closed factories due to shortages in raw materials.

While China’s production and retail sales have held up better in April than during the first Covid shock of 2020, “unemployment, housing, and the supply chain are still suffering”, wrote Chief China Economist for Macquarie Larry Hu.

“The disruption to economic activity could well extend into June,” writes Tommy Wu, Lead Economist at Oxford Economics, adding that “recovery of the logistic will likely take weeks.”

To keep growth over 5%, Beijing “would need infrastructure investment to grow 18% during 2022,” estimates Alicia Garcia-Herrero, Chief Asia- Pacific Economist for Natixis.

“From January to March, the average growth for infrastructure investment was 8%; this was only 3% for April; so an 18 % growth rate for infrastructure is nearly off-limits.”

China’s Economic Decline Will Hurt the Global Economy

Over the past decades, China’s industry has become one of the most powerful poles and all countries around the world have had an expanded relationship with this country.

But Covid-19 has slowed down Chinese businesses and the decline has spiked since 2020. Prior to this, China had the biggest economy in the world and enjoyed a fantastic growth in the export of machinery, equipment, and consumer products.

The pandemic has been the main cause of a slump in Chinese economy from a 10.6% rate of growth in 2010 to a 2.3% growth in 2020. Evidence shows that this rate of economic decline in China has had a direct effect on different businesses around the world. Because Chinese goods were at the top of the list on the international markets and a large number of countries depended on the industry of this country.

Presently, Xi Ping is facing many problems ahead of re-election as General Secretary of the Communist Party. If his government is unable to control the spread of the coronavirus, he will lose his position. Not being able to control the current situation will make him an inefficient leader who has not been able to manage the country and its problems. As his country faced a growing crisis, Xi Ping was spending his time visiting the Winter Olympics being held in Beijing.

Despite promising to resolve all these issues, Xi Ping has not been seen to take any positive measures in this regard. Evidence shows that Xi Ping’s shortfalls and China’s economic decline will have unpredictable consequences for the world and the global economy.

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